The Warehouse Solution: Why Smart Storage is the Key to Africa’s Food Security
A chain of overlapping crises – including the war in Ukraine, climate change and political instability – has raised painful and urgent questions about the state of food security in Africa. At the same time, the concentration of the production of crude oil, natural gas, wheat, maize, and fertilisers like ammonia/urea and muriate of potash in a few countries has exposed the global market to increasing price volatility and a new wave of inflation affecting these key products. Africa is particularly vulnerable to such shocks, leading to a growing focus in the development sector on improving local agricultural productivity and strengthening intra-Africa trade.
Reforming the continent’s agricultural production is hardly an easy task. But based on AFEX’s experience in assisting smallholder farmers, first in Nigeria and now in Kenya, one solution that can have an overwhelmingly positive ripple effect is smart storage.
Lack of storage capacity: an under-appreciated problem for African agriculture
The lack of proper storage facilities remains a major constraint to increasing African farmers’ capacity to produce and sell agricultural commodities. Almost 40% of food in the region perishes before it reaches a consumer, and lack of proper storage is a key driver of these losses. In Nigeria, for instance, farmers produce an estimated 30 million metric tonnes of grains and oilseeds each year, yet the country has only 1.8 million metric tonnes of warehouse capacity in which to store it, according to AFEX estimates. And 47% of the country’s farmers have zero access to any kind of storage facilities during harvest season. As a result, we estimate that post-harvest losses claim 15% of farmers’ output, costing Nigeria N3.5 trillion (over US $8 billion) each year.
Without access to storage infrastructure, farmers are forced to sell their produce immediately at harvest, when supply is high and prices are at their lowest. This limits their ability to earn significantly from a harvest, or to generate enough income to reinvest while reserving sufficient funds to meet their household needs. Additionally, even when farmers attempt to store their harvest within their homes, they are unable to preserve the quality of these commodities, as they lack access to adequate storage measures to stop the degradation of their goods. This can lead to losses of 20-30% of the volume of these crops over time, and it further limits farmers’ earning power, as damaged commodities command lower prices.
How innovative storage solutions can help
Fortunately, there is a solution to these challenges. After launching our operations in northern Nigeria, AFEX quickly discovered the revolutionary impact the provision of proper warehousing can bring to struggling farmers – in addition to other forms of assistance addressing fertilisation, access to capital and so on.
Our system works as follows: Instead of smallholder farmers renting warehouse space from traditional warehousing providers or keeping harvested grains in their homes, AFEX provides them with storage as a service, allowing them to pay for storage per bag, per month. Clients’ farms are grouped into “cells,” with each cell tied to a particular warehouse, ideally located 20-30 km from these clusters of farms, for ease of access. These warehouses provide farmers with better transaction fees and a more generous pricing method, allowing them to avoid the higher expenses of taxes, transport costs and other charges levied in the open market, and translating to more money in their pockets.
The commodities to be stored are deposited at an AFEX warehouse, where they are weighed and graded, and the depositor is issued a warehouse receipt stating the quality and quantity of the commodities deposited. Additionally, AFEX recognizes these commodities as collateral, which enables farmers to access financing from us or our partnering organizations. Besides reducing spoilage and keeping the product safe, this enables farmers to sell their commodities forward: They can sell them to AFEX’s trading company, or we can facilitate the issuance of a six-month forward contract with a demand-side participant who buys their produce at harvest at a price that the farmers determine.
Our Field Extension Officers are a key part of this system, providing year-round services to farmers and serving as AFEX’s focal point for identification, information exchange and content delivery. These officers seek out and register farmers, contacting them through farmer cooperatives to maintain engagement with our current group of farmers and register new ones before the next season begins. Registered farmers are then able to access our other services, including education and access to credit through the AFEX input financing program. Through this bundle of services, farmers are able to increase their income substantially.
To date, in Nigeria, AFEX has a total storage capacity of over 350,000 metric tonnes at 120 warehouses spread across 24 states, the largest of any private sector player in the country. To build on this success, we’ve begun expanding into other African markets: We launched operations in Kenya in Q2 2022, and in the months since, we’ve set up eight new warehouses in the country, located in Uasin Gishu County.
How a warehousing revolution can move Africa toward food security
Despite its massive impact on smallholder farmers’ livelihoods and food production more broadly, storage has traditionally been a neglected aspect of the conversation around food security in Africa. While more typical development sector priorities such as farmers’ financial exclusion and lack of access to fertilisers and other agricultural inputs remain important issues, it makes little sense to expand yields when a lack of warehousing capacity means surplus crops will simply lie out to rot, unable to reach local markets despite strong local demand. AFEX’s model addresses this significant infrastructure gap, and the storage solutions we’ve developed have the potential to smooth out the effects of recent shocks in prices, consumption and production, and to enable farmers to earn fair compensation from their work.
We believe that storage remains key to fixing some of the gaps in the commodities trading ecosystem in Africa. Storage infrastructure is essential for reducing post-harvest losses, upholding quality requirements and enabling farmers to access more structured markets, which increases their earning potential. The prospects for innovative solutions around price discovery for farmers, traceability and transparency for buyers and final consumers – as well as data gathering on production levels for the country/continent – are also greatly improved by the deployment of adequate storage infrastructure. When a transparent and fair market system determines the value of a commodity – which is the role of any commodities exchange – it promotes investment, aids transparency around prices and helps produce an equitable distribution of value across the system. Improving Africa’s storage infrastructure will be an essential step in addressing these issues, and establishing true food security on the continent.
Photo Courtesy of Jo Harrison/Oxfam.